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The Impact of Structural and Macroeconomic Factors on Regional Growth

Author

Listed:
  • Sabine D’Costa

    (University of London)

  • Enrique Garcilazo

    (OECD)

  • Joaquim Oliveira Martins

    (OECD)

Abstract

This papers aims to understand the impact of nation-wide structural policies such as product market regulation in six upstream sectors and employment protection legislation and that of macroeconomic factors on the productivity growth of OECD regions. In particular we explore how this effect varies with the productivity gap of regions with their country’s frontier region. We use a policy-augmented growth model that allows us to simultaneously estimate the effects of macroeconomic and structural policies on regional productivity growth controlling for region-specific determinants of growth. We estimate our model with an unbalanced panel dataset consisting of 217 regions from 22 OECD countries covering the period 1995 to 2007. We find a strong statistical negative effect of product market regulation on regional productivity growth in five of the six upstream sectors considered and the effects are differentiated with respect to the productivity gap. Our estimates also reveal that dispersion of policies hurts regional productivity growth suggesting that policy complementarity can boost productivity growth. The effects of employment protection legislation are negative overall and are especially detrimental to productivity growth in lagging regions. The three macroeconomic factors we consider also influence regional performance: inflation has a negative effect on regional growth and government debt has a positive effect on average. When differentiating the effects by the distance to the frontier, trade-openness is more beneficial to lagging regions and the negative effects of inflation are less negative in lagging regions. These results reveal a strong link between nation-wide policies and the productivity of regions, which carries important policy implications, mainly that these effects should be taken into account in the policy design.

Suggested Citation

  • Sabine D’Costa & Enrique Garcilazo & Joaquim Oliveira Martins, 2013. "The Impact of Structural and Macroeconomic Factors on Regional Growth," OECD Regional Development Working Papers 2013/11, OECD Publishing.
  • Handle: RePEc:oec:govaab:2013/11-en
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    File URL: http://dx.doi.org/10.1787/5k451mplq9lw-en
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    Cited by:

    1. Laura Casi & Laura Resmini, 2014. "Spatial complexity and interactions in the FDI attractiveness of regions," Papers in Regional Science, Wiley Blackwell, vol. 93, pages 51-78, November.

    More about this item

    Keywords

    regional impact of structural policies; regional productivity growth; spatial impact of national policies;

    JEL classification:

    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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